Reduce Debts, Eliminate Interest Charges and Spread Out Payments Over Time
What is a Chapter 13 Bankruptcy?
A Chapter 13 bankruptcy plan allows an individual or couple to reorganize their debts into one repayment plan. This plan allows for the catch up delinquent payments to secured creditors which may include a home mortgage or car payment and payment of unsecured debts without accumulating further interest charges. The plan must be approved by the bankruptcy court; therefore, sufficient current income is necessary to complete the plan. The Chapter 13 plan may not require all unsecured debts to be paid back in full or at one hundred percent. Your bankruptcy attorney will complete a thorough analysis of your current income and expenses to determine a monthly plan payment amount. While the plan is in place you are protected from foreclosures, garnishments and seizures. Once the plan has been completed, which is generally over a three or five year period, the judge issues a discharge of the remaining debts.
Who should file Chapter 13 bankruptcy?
Filing a Chapter 13 bankruptcy is an important decision. In the paragraphs that follow I have detailed common financial issues which I have found prompt people to consider Chapter 13 bankruptcy.
The most common situation involves homeowners who have fallen behind on making their home loan payments. Perhaps the bank will no longer accept mortgage payments and is threatening to foreclose on the property; or the home may already be in foreclosure and a sheriff's sale is scheduled. Filing Chapter 13 will stop the foreclosure process and sheriff sale and allow for the catch up of delinquent home payments. The plan is normally in place for a three or five year period depending on current disposable income. Generally one month after filing bankruptcy, regular home mortgage payments to the mortgage company can be made; as well as plan payments to the Chapter 13 trustee to catch up any mortgage arrearage and other debts will begin. The mortgage company is entitled to recover any arrearage which may include late fees, appraisal, foreclosure costs and attorney fees. These amounts are repaid without interest through the plan.
Certain debts are non dischargeable in a Chapter 7 filing. These debts include child support, maintenance, alimony, debts to former spouses, government fines and recent taxes that are less than three years old. Tax liens on property if there is equity in the property are also a non dischargeable debts. Chapter 13 allows for the repayment of these debts over an extended period of time generally without the accumulation of further interest charges. If the taxes owed the IRS taxes are non-dischargeable and a Chapter 13 bankruptcy is filed the IRS must accept payment through the plan. This is beneficial to the filer because it prevents the IRS from garnishing their wages and seizing their property. The same concept of using a Chapter 13 plan to bring taxes current over a three to five year period applies to back child support as well. Domestic Support Obligations which include child support, alimony or debts owed to governmental agencies regarding child welfare must be repaid in full and can be done so through the plan. It is important to discuss back taxes and domestic support obligations with your attorney prior to selecting a chapter filing.
Another situation where people consider filing Chapter 13 bankruptcy involves prior or past bankruptcy filings. A Chapter 7 bankruptcy may be filed every 8 years. If eight years have not elapsed filing Chapter 13 may be an option. This option will depend on other factors such as disposable current income. Please contact my office or email me at email@example.com if you would like to confirm when you last filed for bankruptcy.
If you're considering a home equity loan or taking a distribution from your retirement account to catch up delinquent payments to your creditors I would encourage you to contact my office immediately. Retirement assets are generally fully exempt up to one million ninety five thousand dollars per individual in both a Chapter 7 and Chapter 13 bankruptcy filing which means the majority of Americans can keep one hundred percent of the their qualifying retirement assets. Before you spend your account down I recommend you contact our office for a free consultation.
In general if a Chapter 7 filing does not meet our client's objective of discharging certain debts or allow them to keep certain assets like their home or car or their income is too high then Chapter 13 bankruptcy is an option we consider.
Can I afford my Chapter 13 plan payment?
My role as a bankruptcy attorney is to help my clients determine if they qualify for Chapter 13. The Chapter 13 plan will need approval by the bankruptcy court and sufficient income is necessary to make monthly plan payments. Therefore, discussing my client's income and expenses thoroughly is critical to a successful plan. Plan payments are based on current disposable income minus allowable expenses. The remaining income or income net of these allowable expenses will be paid to the trustee to catch up back payments on secured debt and pay unsecured debts. The arrearage on secured debts which may include a home mortgage and car payments will be brought current in a Chapter 13 plan. The amount paid to unsecured debtors is based on current income available after expenses are paid. This amount available will determine what percentage unsecured creditors will receive. In some cases the percentage rate unsecured debtors receive is quite low even zero percent. There are other factors which can affect your plan payment amount. Certain assets which are not exempt like a boat or motorcycle which a filer intends to keep may effect a plan payment. Please schedule a free consultation with Tod J. Beavers to understand these concepts in more detail.
What documents will I need to file Chapter 13 and how long will it take?
Our office requires copies of paystubs for the last six months to perform the means test calculation. This calculation is another step in the process of determining which bankruptcy Chapter 7 or 13 is more advantageous. Also, begin to locate past tax returns. If you are unable to find them contact our office and we will contact the IRS on your behalf. Maintain records received from the court which may include notices of garnishments, judgments and foreclosures. For a complete list of documents we recommend to begin organizing your paperwork please email my assistant Mary at firstname.lastname@example.org and request our bankruptcy kit.
Once an Iowa bankruptcy case has been filed, the next step will be to meet the trustee charged with administering the Chapter 13 plan. This meeting is typically in three to four weeks from the date the case was filed. A Chapter 7 bankruptcy asks for an immediate discharge of debts. Conversely, a Chapter 13 offers a plan to repay at least part of the debts over a period of time, usually three to five years depending on the debtor's disposable income. Once the plan has been completed the judge issues a discharge of the remaining debts.